Content

1. History of General Insurance in India

2. Features of Indian General Insurance Market

3. Benefits of General Insurance

4. Role of General Insurance in growth of economy

5. India vs. Global Market

6. Future of General Insurance

7. Regulatory Authority -IRDA

8. Pre and Post Liberalization

9. Market Players

10. Product Range

11. Channel of Distribution:

12. Pricing

13. Performance

History of General Insurance in India

The Indian insurance industry is segmented into two distinct markets: the life insurance market

and the non-life, or general, insurance market.

The General insurance business in India can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some

of the important milestones in the general insurance business in India are:

· 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.

· 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

· 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.

· 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India.

· January 1973. 107 insurers amalgamated and grouped into four companies.

1. Oriental Insurance Company Limited.

2. New India Assurance Company Limited.

3. National Insurance Company Limited and.

4. United India Insurance Company Limited.

1) Low market penetration.

2) Ever-growing middle class component in population.

3) Growth of consumer movement with an increasing demand for better insurance products.

4) Inadequate application of information technology for business.

5) Adequate fillip from the Government in the form of tax incentives to the insured, etc.

6) India is one of the least insured countries but the potential for further growth is phenomenal.

7) Rates of claim settlement were earlier in India the highest in the world, 70 per cent in general insurance, compared to around 40 per cent internationally.

8) Non-life premium has a 0.71 per cent share of GDP.

9) General Insurers (Private Companies) have earned around Rs.1000-cr income.

10) Half of the current demand for comes from the corporate segment.

· Insurance is the instrument of Security, saving and peace of mind. It provides several benefits by paying a small amount of premium to an insurance company.

· Safeguards one’s assets.

· Peace of mind-in case of financial loss.

· Encourage saving.

· Tax rebate.

· Protection from the claim made by creditors.

· Security against a personal loan, housing loan or other types of loan.

The General Insurance Industry has an enviable track record among public sector units. It has a consistent profit and dividend paying record accompanied by a steady growth in its financial resources. Through investments in the Government sector and socially- oriented sectors the Industry has contributed immensely to the nation's development. The industry is recognized as one of the largest financial Institutions in the country. The ventures initiated by the industry in the areas of Mutual Fund, Housing Finance has done exceedingly well in recent years.

To protect the country's foreign exchange reserves, the reinsurance arrangement are so organized that maximum retention is made possible within the country while at the same time protecting interests of the policy holders. The GIC’S inwards reinsurance wing, called the SWIFT, maximizes the foreign exchange balance by acting as an international insurer accepting risks from all over the globe.

India's insurance penetration is low at 1.95 per cent and ranks 51 in the world. In premium collection the record is better, at 23rd position. The ratio of premium collected to gross domestic product is a mere 0.58 per cent. Compared with an average of 7.1 per cent in most industrialized countries. India is still at a very nascent stage with an $8-9 (Rs.400-450) per capita expenditure on insurance, out of which $2 to $2.5(Rs.100-150) will be on general insurance. This was primarily because in India non-life insurance is not considered important and people perceive it as an unnecessary expenditure. Non-life insurance premium at a percentage of GDP is estimated at 2.70 for Japan, 2.55 for South Korea, 1.89 for Malaysia, 1.62 for Singapore, 1.38 for Taiwan, 1.23 for Thailand, 0.86 for the Philippines, 0.68 for China, 0.66 for Indonesia, and 0.51 for Pakistan.

The Indian insurance sector will register a high growth rate in the future years to come, says the

report prepared by Fitch Ratings. This will be due to the innovative products, better distribution network, better services coupled with other never-before changes that have taken place in the insurance sector.

The report laid stress on branding, customer service and tailor made products that will assume importance besides information technology that will become vital to bring down costs in the future. Also data warehousing, ensuring effective cross selling will grown in importance to exploit the largely unexploited market.

Regulations

In India Insurance is a federal subject. The primary legislation that deals with insurance business

in India is:

Insurance Regulatory Authority

On the recommendation of Malhotra Committee, an Insurance Regulatory Development Act

(IRDA) passed by Indian Parliament in 1993. Its main aim was to activate an insurance regulatory apparatus essential for proper monitoring and control of the Insurance industry. Due to this Act several Indian private companies have entered into the insurance market, and some companies have joined with foreign partners.

In economic reform process, the Insurance Companies has given boost to the socio-economic development process. The huge amount of funds that are at the disposal of Insurance Companies are directed as desired avenues like housing, safe drinking water, electricity, primary education and infrastructure. Above all the policyholders gets better pricing of products from competitive insurance companies.

Liberalization

The opening up of Insurance sector was a part of the ongoing liberalization in the financial sector

of India. The domain of State-run insurance companies was thrown open to private enterprise on

December 7, 1999, with the introduction of the Insurance Regulatory and Development Authority

(IRDA) Bill. The opening up of the sector gave way to the world known names in the industry to enter the Indian market through tie-ups with the eminent business houses. What was once a quiet business is becoming one of the hottest businesses today.

Post liberalization

The changing face of financial sector and the entry of several companies in the field of non-life

Insurance segment are one of the key results of these liberalization efforts. Insurance business

by way of generating premium income adds significantly to the GDP. Despite the fact that the market is vast in India for the Insurance business, the coverage is far less compared with the international standards. Estimates show that a meager 35-40 million, out of a population of 950 million, have come so far under the umbrella of the insurance industry. The potential market is so huge that it can grow by 15 to 17 per cent per annum. With the entry of private players, the Indian Insurance Market may finally be able to make deeper penetration in to newer segments and expand the market size manifold. The quality of service will also improve and there will be wide range of product catering to the needs of different customers. The pace for claims settlement is also expected to improve due to increased competition. The general insurance market in India is likely to be risky in the initial stages, but this will improve in the next three to five years Therefore,

it may be advantageous to be a second-round entrant. In the general insurance market the need

to build trust over time is less important than in the life market because the risk assessment systems and data that are the key to success in the general insurance market are significantly underdeveloped in India even today

Market Players

Presently there are 12 general insurance companies with 4 public sector companies and 8 private

insurers. Although the public sector companies still dominate the general insurance business, the private players are slowly gaining a foothold. A brief description of various players is given below:

ICICI Lombard General Insurance

ICICI Lombard General Insurance Company Limited (ICICI Lombard) is a 74:26 venture between ICICI Bank Limited, India's largest private sector bank and Lombard Canada Limited, one of the oldest property and casualty insurance companies in Canada. ICICI Lombard commenced business in September 2001 and is today operational in 40 cities across India.

TATA AIG Insurance Company Ltd

IT is a joint venture between the Tata group; India's most trusted industrial house and American

International Group, Inc. (AIG), the leading U.S. based international insurance and financial service organization.

Bajaj Allianz

Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited

and Allianz AG of Germany. Both enjoy a reputation of expertise, stability and strength. The venture Bajaj Auto holds 74 per cent of the paid up equity capital of Rs 110 crore, while the remaining 26 per cent is held by Allianz.

HDFC Chubb General Insurance

HDFC holds 74 percent and Chubb 26 percent in the new joint venture company, HDFC Chubb

General Insurance Ltd, was initially capitalized at Rs.100 crore.

Reliance General Insurance Company Limited

Reliance Industries has around Rs.300 Crores into its insurance venture through its financial arm

Reliance Capital Ltd.It is the first Indian private company without any foreign insurance tie-up.

Royal Sundaram

Royal Sundaram, a joint venture between Sundaram Finance of Chennai, India and Royal &

SunAlliance of UK, is built upon values of truth, trust, teamwork, people commitment and professionalism.

Cholamandalam MS General Insurance Company Limited

Cholamandalam MS General Insurance Company Limited (Chola-MS) is a joint venture of the

Murugappa Group & Mitsui Sumitomo. Chola-MS commenced operations in October 2002 and has issued more than 1.4 lakh policies in its first calendar year of operations.

GIC and Four subsidiaries

Prior to 1973, general insurance was urban-centric, catering mainly to the needs of organizedtrade and Industry. One hundred and seven insurers including branches of foreign companies operating the country were amalgamated. These were grouped into four companies, viz. the National Insurance Company Ltd., the Oriental Insurance Company Ltd., the New India

Assurance Company Ltd., and the United India Insurance Company. The Government of Indiasubscribed to the capital of GIC. GIC, in turn, subscribed to the capital of the four companies. All the four companies are government companies registered under the Companies Act. GIC is into the reinsurance business whereas its subsidiaries are into the insurance of Non Life products.

Product Range

1. Motor Insurance: Motor insurance is mandatory for all vehicles in India. There are two types of motor insurance

· Third Party- only insures the party (parties) other than the owner in an incident.

· Comprehensive- that insures the owner as well as the third party involved. The premium for motor Vehicles is decided on the value of the vehicle and location where it is to be registered. The premium for heavy commercial vehicle is decided on the value of the vehicle and gross laden weight.

2. Property Insurance: Property insurance covers land, building and the contents of thebuilding.

3. Burglary: Burglary insurance covers all losses arisen out of burglary committed in one's premises.

4. Fire Insurance: Fire Insurance is a Comprehensive policy. This policy besides covering loss on account of fire also covers loss on account of the following Earthquake, Riots, Strikes, Malicious intent, Floods.

5. Health Insurance: Health insurance polices ensure guarding ones health against any calamities that may cause long term harm to his/her life and can hamper ones earning available for ability for a lifetime. These health policies are individuals and groups.

The following types of health policies:

· Mediclaim Policy

· Personal Accident - Individual

· Personal Accident - Family

· Group accident insurance

· Jan Arogya Bima Policy

· Bhavishya Arogya Policy

· Traffic Accident Policy

6. Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by reason of any wrongful Act in their Official capacity.

7. Marine Insurance

· Cargo in transit

· Cargo declaration Policy

· Marine Hull Insurance: Inland vessels ocean going vessels, fishing & sailing vessels, freight at risk, construction of ships, voyage insurance of various vessels, ship breaking, insurance Awaiting break up, Insurance Oil & Energy in respect of onshore & offshore risks including construction risk.

8. Travel Policy: Any tourist may die or loss their bagges, passport etc. while travelling. Travel policies are designed to care of all the problems that generally occur while travelling. The following travel policies are:

· Overseas Mediclaim Policy.

· Videsh Yatra Mitra.

· Baggage Insurance Policy.

· Executive Travel Insurance.

· Suhana Safar.

9. Business policy: A Business policy covers the risks of loss of business goods, plant and machinery etc. The common type of business policies are:

· Burglary Insurance for Business premises.

· Shopkeepers Insurance Policy.

· Partnership Insurance.

· Workman's Compensation Insurance.

· Fidelity Guarantee Insurance.

· Machinery Breakdown Policy.

· Boiler Explosion Insurance Policy.

· Contractor's Plaug & Machinery Insurance Policy.

· Contractors all risk Policy.

· Air transit Insurance Policy.

· Loss of Stock in Cold Storage Insurance policy.

· Product Liability Insurance.

10. Other General Policy: Apart from other main general Insurance there are several other General polices and more are going to introduce, such as:

· Bhagyashree Child Welfare Policy-covers girl child in the age group of 0 to 18 years.

· Raj Rajeshwari Mahila Kalyan Vojans.

· Crop Insurance Scheme.

· Jald Rahat Yojana.

Channel of Distribution:

Till few years back, the only mode of distribution of insurance products was through Agents. While agents continue to be the predominant distribution channel, today a number of innovative alternative channels are being offered to consumers.A substantial shifts in the distribution of insurance in India is expected. Many of these changes will echo international trends. Worldwide, insurance products move along a continuum from pure service products to pure commodity products

Initially, insurance is seen as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and place a high premium on brand names and reliability. As products become simpler and awareness increases, they become off-the-shelf, commodity products. Sellers move to remote channels such as the telephone or direct mail. Insurance is sold

by various intermediaries, not necessarily insurance companies. Some of them are bancassurance, brokers, the internet and direct marketing.

Banks and finance companies will emerge as an attractive distribution channel for insurance. This trend will be led by two factors which already apply in other world markets. First, banking, insurance, fund management and other financial services will all form a set of services rather than disparate ones.

Second, banks and finance companies are being driven to increase their profitability and provide

maximum value to their customers. Therefore, they are themselves looking for a range of products to distribute. Though it is too early to predict, the wide spread of bank branch network in India could lead to bancassurance emerging as a significant distribution mechanism.

Insurers in India should also explore distribution through non-financial organisations. For example, insurance for consumer items such as refrigerators can be offered at the point of sale. This piggybacks on an existing distribution channel and increases the likelihood of insurance sales. Alliances with manufacturers or retailers of consumer goods will be possible. With increasing competition, they are wooing customers with various incentives, of which insurance can be one.

Another potential channel that reduces the need for an owned distribution network is worksite marketing. Insurers will be able to market pensions, health insurance and even other general covers through employers to their employees. These products may be purchased by the employer or simply marketed at the workplace with the employer’s co-operation.

Pricing

India is a very price sensitive market. However, 65 per cent of the business is in tariff, where pricing is still determined by the government, which decides the rates, terms & conditions for various businesses like Fire, Motor, Engineering, Workmen compensation insurance etc.

It is going to change over the next few years. In non-tariff products like personal accident, Burglary, Cash-in-transit, marine transit etc.There is a lot of pressure on pricing. Although the insurers are free to quote the rates, companies will have to be reasonable while determining a pricing structure because, across the globe, there are instances of companies going bust while playing the game of undercutting state-run companies.

Markets performance

The market share of private players rose to 13.7 per cent, recording a growth of 86.72 per cent on an annual basis, while the market share of public sector majors stood at 86.3 per cent, registering a marginal growth of 6.03 per cent. The overall market has recorded a growth of 12.71 per cent. The total premium collections of general insurance industry stood at Rs 8,081.05 crore for the first half of current fiscal, of which the private sector contributed Rs 1,107.27 crore and the balance Rs 6,973.78 crore was brought in by the public sector non-life majors.

Among the private sector insurers, ICICI Lombard topped the list with premium collection of Rs 234.85 crore, with a market share of 2.91 per cent, followed by Bajaj Allianz with Rs 218.06 crore of premium and 2.7 per cent market share and Tata AIG with 194.01 crore premiums and 2.4 per cent market share.

Among the public sector players, New India garnered a market share of 24.09 per cent with Rs 1,946.7 crore premium, followed by National with 20.59 per cent (Rs 1,664.18 crore), United India with 20.5 per cent (Rs 1,656.3 crore) and Oriental with 18.62 per cent (Rs 1,504.69 crore) share.

Premium Income by Players

662.26

1,504.69

234.85

218.06

194.01

1,946.70

ICICI Lombard

Bajaj Allianz

Tata AIG

New India

National

United India

1,656.30 1,664.18

Oriental

Others

Market Share of various players

2.90% 2.70%

8.20%

18.60%

2.40%

24.10%

ICICI Lombard

Bajaj Allianz

Tata AIG

New India

National

United India

Oriental

20.50% 20.60%

Others